2019 (5) TMI 1402 - AT - Central Excise

CENVAT Credit - common input services which is used for both dutiable and exempted final products - reversal of proportionate credit attributed to exempted products - demand on interest and penalty - HELD THAT - There is no contest of demand of Cenvat credit, hence the same is upheld. Penalty - HELD THAT - The demand was raised for the extended period as there is suppression of facts on the part of the appellant therefore, in terms of decision of the Hon'ble Apex Court in the case of UOI vs. Dharamendra Textile Processors 2008 (9) TMI 52 - SUPREME COURT , even though the amount is paid before issuance of show cause notice as per the proviso to Section 11A invoked, penalty cannot be reduced nor waived. Demand of Interest - HELD THAT - The interest can be charged in case where Cenvat credit is taken wrongly and also utilized. Only for availment of Cenvat credit without utilization thereof, interest cannot be demanded - In the present case, the appellant though availed Cenvat credit but have not utilized till the date of reversal, therefore, interest is not chargeable. Hence demand of interest is set-aside. Appeal allowed in part.

Summary

Issues:
1. Availing Cenvat credit on common input services used for both exempted and dutiable final products.
2. Contention regarding demand of interest and imposition of equal penalty under Section 11AC.
3. Interpretation of Rule 14 for recovery of Cenvat credit wrongly taken but not utilized.

Analysis:
1. The appellant had two divisions, one availing exemption under Notification No. 30/2004-CE while utilizing Cenvat credit on common input services for both divisions. The department contended that as the credit was used in both dutiable and exempted products, proportionate credit for exempted products is inadmissible, leading to a confirmed demand with interest and penalty.

2. The appellant, through their counsel, did not contest the demand payment made after receiving the show cause notice. They contested the interest demand and equal penalty imposition under Section 11AC. The appellant argued that as they did not utilize the Cenvat credit, it remained unutilized in their account, indicating no malafide intent to warrant penalty imposition. They also highlighted that since the demanded credit was not utilized, interest under Rule 14 should not apply.

3. The Revenue representative reiterated the findings of the impugned order, emphasizing the penalty imposition due to the extended period of demand and alleged suppression of facts. However, after considering both sides and reviewing the record, the judge upheld the demand for Cenvat credit. Regarding the penalty, the judge referred to the decision in UOI vs. Dharamendra Textile Processors, stating that even if the amount is paid before the show cause notice, the penalty cannot be reduced or waived if there is suppression of facts. The judge also analyzed Rule 14, clarifying that interest can only be charged when Cenvat credit is both wrongly taken and utilized. Since the appellant had availed but not utilized the credit until reversal, interest was deemed not chargeable, leading to the setting aside of the interest demand.

In conclusion, the impugned order was modified to reflect the above analysis, partially allowing the appeal.